Leeham News and Analysis
There's more to real news than a news release.
China’s hollow airline “recovery”: capacity without revenue
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By Judson Rollins
Introduction
March 15, 2021, © Leeham News: A flood of media coverage has centered on Chinese airlines’ supposed recovery from COVID-19.
The Chinese “big three,” Air China, China Eastern, and China Southern, made headlines with their rapid restoration of flights and even the announcement of new routes. Industry commentators and industry group IATA trumpeted the “recovery to pre-crisis levels” in China.
New routes garner headlines in normal times, but even more so now. And there is other good news: the US Transportation Security Administration last week processed the highest number of passengers since the pandemic all but shut down traffic a year ago.
But yield quality of such traffic in most markets is problematic. Cheap fares draw leisure travelers, yet business traffic remains a fraction of pre-pandemic levels and there are few signs of near-term recovery. Executives at Lufthansa Group, where business travelers deliver nearly 60% of revenue, said earlier this month they believe such travel will ultimately only return to 80-90% of pre-pandemic levels – and not until mid-decade.
If market analysts want to examine China’s recovery, they have to look at the whole picture. China may be leading the way in capacity restoration, but it’s not the “good” news touted.
The positive trends in China are in mainland domestic flights and seats, not passenger traffic or revenue — and not at all for regional (Hong Kong, Macau) or international routes. Scant attention has been paid to operational data from the country’s airlines – and even its national aviation regulator – showing passenger traffic even on domestic routes is still well below pre-COVID levels.
The “big three’s” third-quarter 2020 financial reports – when the domestic market was supposedly beginning to hit its stride – showed revenue losses far greater than the airlines’ pre-crisis share of revenue from international service. Even those disastrous results included a strong tailwind from increased cargo revenue, as the airlines don’t break out their revenue by business segment outside of annual reports.
LNA dug into the reports of China’s three state-owned airlines, privately held Hainan Airlines, low-cost carrier Spring Airlines, and monthly data releases from the Civil Aviation Administration of China (CAAC). Much of this data is only published in Mandarin, or in English only after long delays, so we enlisted translation help to build a more complete picture.
Summary
- Capacity is (mostly) back, but passenger volumes haven’t followed.
- Desperate sales promotions are widespread among Chinese carriers.
- Third quarter 2020 financial reports show grave revenue losses.
- Fourth quarter traffic isn’t materially better – and early 2021 is worse.
- Continued excess capacity appears to be driven by politics, not demand.
Bjorn’s Corner: The challenges of hydrogen. Part 28. Airbus priorities
March 12, 2021, ©. Leeham News: I had the chance to talk about Sustainable Air Transport with Airbus VP Zero Emission Aircraft, Glenn Llewellyn, in the week.
The discussion centered around Airbus’ overall direction and the targets with their ZEROe project.
Figure 1. Airbus ZEROe airliner concepts. Source: Airbus.
The A350, Part 9: The A350-1000 versus 777-300ER
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By Bjorn Fehrm
Introduction
March 11, 2021, © Leeham News: Last week, we started analyzing the Airbus A350-1000 and compared it with the Boeing 777-300ER.
We now fly the airplanes on a demanding route, close to their maximum range, the LAX to Hong Kong sector. How much better is the 14 years younger A350-1000?
Summary
- The A350-1000 is the logical replacement for a 777-300ER if a same capacity replacement is sought.
- The carbon-fiber structure, a more advanced wing, and newer engines give the A350-1000 convincing arguments for the change.
HOTR: Investors optimistic for Boeing. Are they too optimistic?
By the Leeham News Team
March 10, 2021, © Leeham News: Boeing’s recovery will be long, slow and painful.
But Boeing has been through long, slow and painful periods before.
Investors appear optimistic. The stock price has been rising since lows hit immediately after and throughout the pandemic.
The stock price is far off its high of $440 on March 1, 2019. March 1 was after the October 2018 Lion Air 737 MAX accident but nine days before the March 10, 2019, Ethiopian Airlines MAX crash. The price closed yesterday at $231, abut equal to where it was a year ago today.
Suppliers remain hunkered down as pandemic recovery may stall
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By Scott Hamilton
Introduction
March 8, 2021, © Leeham News: Aerospace suppliers continue to struggle even as passenger airlines begin to gingerly place new aircraft orders and 
Boeing resumes production of the 737 MAX.
Airbus continues to produce the A320, A330 and A350 at lower production rates than the pre-pandemic era. Boeing is at low-rate production for the 737 MAX, after a 20-month grounding. The 777 is down to 2/mo and the 787 goes to 5/mo this month. At least two aerospace analysts on Wall Street think the 787 rate could come down further.
Airbus and Boeing each received a handful of orders so far this year.
But suppliers continue to struggle.
Summary
- Airbus, Boeing continue to extend payments.
- Smaller suppliers seek bankruptcies.
- Larger suppliers remain in “hunker down” mode.
Pontifications: First flight nears for Berlin Airlift Foundation’s replacement airplane
The left wing of the Berlin Airlift Historical Foundation Douglas C-54E was impaled by a hangar beam during a tornado. Source: BAHF.
By Scott Hamilton
March 8, 2021, © Leeham News: The Berlin Airlift Historical Foundation appears to be weeks away from the test flight for the replacement of the Douglas C-54E that was badly damaged last year in a tornado.
The 76-year old airplane participated in the historic 1948 airlift that brough food, coal and other goods to West Berlin after the Soviet Union initiated a ground blockade. The Soviets tried to starve the West Berliners into submission and force the former World War II Allies (Britain, France and the US) to hand over occupation of West Berlin to the Soviets, who occupied East Berlin deep inside East Germany.
Related Links
Bjorn’s Corner: The challenges of hydrogen. Part 27. Fuel cell APU gains
By Bjorn Fehrm
March 5, 2021, ©. Leeham News: We have discussed different auxiliary power generation principles for a hydrogen aircraft over the last weeks. We found a fuel cell auxiliary power system has many attractions, one being the possibility of making an elegant more-electric aircraft system architecture.
With or without such an architecture, the fuel cell alternative will save hydrogen consumption and cost compared to a hydrogen-converted APU alternative. What’s the value of the saving?
Figure 1. The Ballard/Audi FCgen-HPS fuel cell stack for cars and other mobility applications. Source: Ballard Power Systems Inc.
The A350, Part 8 A350-1000 Intro
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By Vincent Valery
Introduction
Mar. 4, 2021, © Leeham News: After assessing the performance of the A350-900 and its ULR variant, we now turn our attention to the largest A350 variant, the -1000. It entered service in 2018, a little more than three years after the -900.
Summary
- Stretching the aircraft by different means than the 777-300ER;
- A change of plan costs a significant order;
- Moderate sales and limited prospects in a changing market;
- An aircraft for trunk routes.
HOTR: Alaska begins service with 737 MAX
- Alaska likely to cancel A320neo order. Details below.
By the Leeham News Team
March 1, 2021, © Leeham News: Alaska Airlines today launched its first service with the 737 MAX.
The carrier’s first flight was flight AS 482 from Seattle to San Diego, operated with a 737-9.
Alaska is the fourth US airline to operate the MAX. It is the third to use it in service since the type was recertified in November by the Federal Aviation Administration. American and United airlines returned their MAXes to service earlier. Southwest Airlines followed later this month. The Seattle-based airline hadn’t taken delivery of the MAX before the March 13, 2019 grounding.
Alaska is the second carrier to place a follow-on order for the MAX, after Ryanair, following recertification by the FAA. The MAX 9 will replace Alaska’s remaining Airbus A319/320ceos by 2024. Alaska continues to operate 10 Airbus A321neos and still has 30 A320neos on order, all from its acquisition of Virgin America in December 2016. In its annual 10K filing, Feb. 26, with the Securities and Exchange Commission, Alaska said, “At this time, we do not expect to take delivery of these 30 Airbus aircraft.” Alaska disclosed that $15m in deposits for the A320neo order, made by Virgin America, are “not likely to be recoverable.”
Alaska Airlines Boeing 737-9. Source: Woody’s Aeroimages.
The carrier originally ordered the 737-8. Officials later swapped these orders for the larger MAX 9. Alaska’s 737-900ERs are configured with 178 seats compared with the 737-800’s 159 seats. The advertised range of the MAX 9 is 3,550 statute miles with one auxiliary fuel tank. The tank adds about 270 miles to the range of the base specification.
Boeing doesn’t break out the sales of the MAX sub-types. There are an estimated 250-300 orders for the MAX 9, a “tweener” airplane between the MAX 8 and MAX 10.
Boeing’s Ability to Finance the Next Airliner
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By Vincent Valery
Introduction
March 1, 2021, © Leeham News: The combination of the 737 MAX crisis and the COVID-19 pandemic led Boeing to lose $12.5bn over the 2019-2020 period. Boeing Commercial Aviation (BCA) lost $20.5bn during those two years, compared with a $7.8bn operating profit in 2018. Revenues at the division fell from $60.7bn in 2018 to $16.2bn in 2020.
The severe difficulties at BCA led Boeing to issue record amounts of debt. Net debt (subtracting cash and short-term investments) increased from $5.2bn to $38bn between the end of 2018 and 2020. Boeing issued another $9bn in debt in early February to refinance a portion of this debt.
As the commercial aviation ecosystem recovers from the COVID-19 pandemic, Boeing’s financial situation should improve. However, the OEM will have to deal with the sizable debt load accumulated during the twin 737 MAX and COVID-19 pandemic crisis.
LNA analyzes Boeing’s financial situation, including the OEM’s ability to finance a future aircraft program.
Summary
- A strained balance sheet;
- Two healthy products and a weak one;
- Post COVID-19 recovery prospects for BCA;
- Hard choices to finance a new aircraft program.